Thursday, 27 November 2008




The PFI Bombshell?


The whole point of PFI, if you believe the hype, is to deliver public service by shifting the risk to the private sector and then have the Government simply rent back the delivered project for a specified length of time at a premium rate to reward the private consortium for taking the risk.

So, why is it that no one has yet mentioned in the press that three of the key financial backers in the private consortiums are HBOS, Abbey National and RBS? That's significant because they are all institutions that are now partly in 'public ownership' thanks to an injection fo £50 billion in recapitalisation.

That means that the Government is not only propping them up, but it is also paying them premium rent for projects it got them to build and rewarding them for taking a risk that it is itself now liable for. In fact, the Government is now paying the banks to take a risk which they are no longer taking because all the risk is back in the hands of the Government as a significant, powerful and influential shareholder.

We're not talking about small picking either, they are over 600 signed PFI agreements that the Government has made, and quite a few of them are backed by the banks that the Government has pushed itself to bankruptcy to hold up. Now put this in context with new accounting rules   SEE BELOW that will be introduced in April 2009 to make PFI be "on balance sheet". At this point, assuming the Government do it, the books will be laid open and potentially the economy will crash even further.

If at this point the scale of the debt is revealed formally, then there is every potential that the Government could default on its payments to the banks for PFI (both the ones it has part ownership of and the ones that it doesn't); if one of those banks was then to collapse, what would happen to the schools, hospitals, defence installations, transport projects and all other manner of PFIs that have been agreed?

Seems to me that we might not just have a "tax bombshell" coming but rather a "PFI bombshell" that could cripple the country in a way not seen for a generation.

UPDATE: The bringing of the PFI debt on to the balance sheet in April would be a very good reason to hold a snap election before the roof falls in. No?


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Treasury backs down in row over building cash

By Tom Gordon
The Treasury has backed down in a confrontation with the Scottish government over delays to building projects that could have cost Scottish jobs.

THE TREASURY has backed down in a confrontation with the Scottish government over delays to building projects that could have cost Scottish jobs.

Earlier this month, the Sunday Herald revealed Scottish ministers feared Treasury inaction would stop them accelerating major capital projects in order to help the economy through the coming recession. Alex Salmond, the first minister, warned Westminster's silence on whether it would permit the extra spending by granting so-called "capital cover" was threatening jobs.

The Treasury had said it would grant capital cover to new hospitals, roads and school buildings south of the Border, but was silent on whether it would extend it to Scotland, Wales and Northern Ireland.

A civil service paper prepared for Salmond warned: "The present apparently different regimes north and south of the Border are difficult to defend and explain. The impact in Scottish investment programmes and on the real economy would be very severe."

The issue had arisen because new international accounting rules will apply from next April. However, last week, Yvette Cooper, chief secretary to the Treasury, wrote to John Swinney, the finance secretary, and said the changes would be treated equally on both sides of the Border.

Complaining about a lack of information from Scotland about the issue, she said: "We have not imposed any delays in capital spending in Scotland. Our approach to the introduction of the new IFRS accounting standards is the same in Scotland as in England."

The argument between Edinburgh and London was sparked by incoming changes to the rules on public private partnership and private finance initiative (PPP/PFI) projects. From April 2009, the long-term costs of the schemes will move "on balance sheet" for the first time. The intent is to make the government's books more transparent.

All existing PPP/PFI will receive capital cover from the Treasury, effectively government permission to exist, but there was doubt about whether new projects would also receive it.

Ministers are anxious to bring forward new capital projects, including £100 million in extra affordable housing, to secure construction industry jobs.

The Scottish Futures Trust, which Salmond hopes will provide cheaper alternatives to PPP/PFI, is also dependent on Treasury capital cover.

Salmond and Swinney asked in vain for clarification from Jim Murphy, the Scottish Secretary, in October.

A spokesman for Swinney said: "This is an important clarification, as all capital projects are due to come on balance sheet.

"We have a £35 billion infrastructure investment plan to invest in schools, hospitals and transport, and it is vital that Scotland gets fair treatment from the Treasury over capital cover."

Posted by Britannia Radio at 20:19